Annual Report 2011-2012 - National Institute of Rural Development

ANNUAL REPORT 2011-122. Repayment Crisis in Microfinance- Dr. B.K. SwainThe Reserve Bank of India constituted the MalegamCommittee with an intention to bring Repayment Crisis whichentails disruptions in the delivery of micro credit services atan affordable cost across a vast section of the underprivilegedpeople. It also means stoppage of credit flow to the lessprivileged people living in the rural and semi-urban areasand perpetually keeping them under the clutches ofmoneylenders.However, the general impression reflects that microfinancestill continues to charge a very high rate of interest andremains pretty unresponsive to income generating activitiesof the poor and lower middle class people in the rural areas.Therefore, in the corridor of banking division, the toughestchallenge now is to move towards a transparent systemwhere poor people will not be exploited by the moneylendersand simultaneously not be loaded with a microfinanceinstitutional mechanism which slowly and steadily exploitsthem to perpetually remain poor.In this background, it is a privilege to study such a crucialaspect of the economy which directly affects the survival ofmillions. The major findings of the study carried out by theCentre for Rural Credit & Development Banking are asfollows:It has been observed that in more than 74 per cent ofcases, multiple lending without commensurate progressin asset creation and sustainable activities have erodedthe repayment capacity of the borrowers. Hence, dueto non-availability of assets, it appears that there arewillful attempts towards non-repayments of loanssanctioned by the microfinance institutions;With persuasion, the field investigators have found thatsome sort of subtle form of coercive techniques areapplied by the recovery agents or popularly known asfield facilitators to recover the outstanding loans. It canbe rightly said that this is the main cause towards defaultin repayment of MFIs loans in Andhra Pradesh though itis prevailed in lesser degree in the State of Odisha:It has also been found that there are several minorcauses which have triggered the repayment crisis whichinclude wrong timings of collection of instalments,deduction of some frivolous dues along with theinstalments and delay in sanction of new loans afterrepayment of the old loans;It has also been examined and found that no MFIadopts an appropriate microcredit model to make thecredit facility useful to the borrowers. Indeed mostMFIs follow the also-run strategy and provide generalfacilities which hardly help to mitigate the status ofultra poor and poverty stricken people affected by thismalaise since long;It has been proved positive that MFIs have found thatmicrofinance is the most sustainable way to let the poorpeople improve their standard of living but theirmisconceived notion that regular repayment of dues andlow default situation as observed before the crisis willalways guarantee that microcredit is the only long-termstrategy to eradicate poverty.Indeed, this project study is an eye-opener to realise theground situation as prevailing in the context of delivery ofrural credit as a whole to the disadvantaged section of peoplein the society.ANNUAL REPORT 2011-12 | 23